Vol 1 (2004) - Issue 3

Article preview

Paying or Playing for Extra Time?

Will the football industry in the UK ever sort itself out?
‘Leeds United in GBP 80 million debt crisis! Leeds on brink of Administration! Leeds to be rescued by Bahraini Sheikh! McKenzie steps down and Birch takes over to try and rescue crisis club. Consortium ready to take over at Leeds. Consortium withdraws interest in Leeds. Creditors extend deadline on Leeds for the third time ...’ and at last ... ‘Consortium Saves Leeds in GBP 22 million deal!’

The headlines have rolled on and on since Leeds United’s financial plight became front-page news in early August 2003. Many would argue that the endless saga of football clubs in financial difficulty has become as routine as the never-ending and shocking deluge of bombings in the Middle East. A striking difference is that, despite the famous quotation of the late Bill Shankley that football is more important than life or death, unlike the horrors that take place almost on a daily basis in the world today, it simply isn’t. Football is a business which often defies logic but it is within the gift of the football authorities to knock some sense into the financial architects of the football industry.
Since 1996, at least 28 Football League clubs have either been in Administrative Receivership, Administration or entered into a formal CVA with their creditors, in addition to half a dozen or so clubs in the Scottish League and a similar number in the Conference and semi-professional leagues. On top of this there are several league clubs who have entered into wage deferrals and other informal debt postponement arrangements with their creditors.
As an industry statistic (there are 72 members of the Football League), this indicates a failure rate in excess of 38%. Furthermore, at least three of these clubs have been subject to insolvency proceedings on more than one occasion! No other industry can come close to matching such appalling failure rates. It is depressing that an industry which attracts so much money and media focus should perform so badly.
It is important to put these statistics into financial perspective. The Premier League made operating profits (before transfers) of GBP 81 million during the 2000/01 season and GBP 84 million in 2001/02 whilst the Football League made operating losses ofGBP 138 million and GBP 45 million respectively.
Of the total income in 2001/2 of GBP 1.6 billion between the 92 clubs, GBP 1.13 billion was claimed by the Premier League. Furthermore, of GBP 169 million spent on transfers between English clubs only GBP 11 million went to the Football League of which 86% went to Division One. In the previous season, GBP 34 million flowed to the Football League. Only 24 clubs made a profit after transfers are taken in to account, which is three more than the previous season.
Most people’s initial reaction to those unimpressive statistics is to lay the blame firmly at the collapse of ITV Digital. However, the gravy train-crash of the lucrative contract, onto which the League clubs readily climbed under the ITV Digital deal, didn’t happen until the spring of 2002. Consequently, the financial impact of the collapse was not felt until the 2001/02 season was virtually over. The truth is that the rot had set in long before the ITV Digital debacle reared its head.
What the ITV Digital collapse arguably did do was to provide those responsible for the finances of the ailing clubs (the chairmen and chief executives) with a convenient excuse for a catalogue of errors, financial naivety and a desire for success at any price that had driven so many clubs towards financial ruin.
The reality is that the level of football’s income is far less critical than the ability of those running it to contain its spiralling costs, in particular those of player wages within the two highest divisions. Alan Sugar, when chairman of Tottenham Hotspur, astutely observed that many months were spent by the Premier League executives negotiating lucrative deals with BSkyB TV broadcasters, merely for the member clubs to subsequently pour whatever was gained into the pockets of a posse of ‘Carlos Kickabouts’. The frantic rush for success has led to the folly of a number of clubs trying (usually in vain) to emulate the success of Manchester United and Arsenal with disastrous financial consequences, the prime example being Leeds United, although arguably Newcastle and Chelsea follow close behind.